The Federal Reserve’s semi-annual report, released on July 10, 2026, identifies high-tech investment, particularly in artificial intelligence, as driving solid growth, while naming the ongoing war in Iran as the single biggest risk to the economic outlook. The report highlights a surge in capital spending on AI-related data centers as a major driver of manufacturing output, contributing to a ‘solid expansion’ in the first half of 2026. Government spending has also supported economic activity, but the housing market remains stagnant due to elevated interest rates and tight financing conditions. Externally, the conflict in the Middle East and lingering effects of tariffs have slowed global growth and created supply chain uncertainties. Domestically, the labor market is broadly stable with wages and productivity rising, though a slowdown in immigration has tightened labor supply. Small businesses and households report difficulty accessing credit. Inflation remains a persistent challenge, with price pressures re-accelerating during the spring, keeping the Fed’s preferred measures above the 2% target. Asset prices are trading above historical averages, raising overvaluation concerns, though the financial system is described as generally sound and long-term inflation expectations remain anchored.